Effects of minimum wages on youth employment: The importance of accounting for spatial correlation

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Abstract

The relationship between minimum wage increases and youth employment is investigated using county-level data and spatial econometric techniques. Results that account for spatial correlation indicate that a 10% increase in the effective minimum wage is associated with a 3.2% decrease in youth employment, a result that is 28% higher than the corresponding estimate that does not control for spatial correlation. Thus, estimates that do not take into account spatial correlation may significantly underestimate the negative effect of the minimum wage on teenage employment. Improperly controlling for factors that vary systematically over space can lead to incorrect inferences and misinform policy.

Original languageEnglish
Pages (from-to)303-317
Number of pages15
JournalJournal of Labor Research
Volume29
Issue number4
DOIs
StatePublished - Dec 2008

Keywords

  • Minimum wage
  • Spatial autoregressive model
  • Spatial econometrics
  • Youth employment

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